REG-Base Resources Limited: Quarterly Activities Report - June 2023

Base ResourcesAnnouncement

25/07/2023 07:30

 

 

 

AIM and Media Release 

25 July 2023

 

Base Resources Limited 
Quarterly Activities Report – June 2023

 

African mineral sands producer, Base Resources Limited (ASX & AIM: BSE) (Base
Resources or the Company) is pleased to provide an operational, development
and corporate update for the quarter ended 30 June 2023.
 

KEY POINTS

* FY23 production guidance achieved and FY24 production guidance released.
* Prices were steady for ilmenite and slightly lower for rutile, while zircon
prices moderately increased.
* Mining volumes increased to 4.1Mt following a stoppage in the prior quarter
for the transition of half the mining operations to the North Dune.
* Exploration drill results from Kwale East confirmed the presence of heavy
mineral, with a peak drill hole grade of 6.3% heavy mineral, as well as a high
value mineral assemblage.  Three areas were identified for further targeted
exploration as part of a second phase air core drilling program.
* Results from the first phase of drilling at the Umba South exploration
project in Tanzania confirmed rutile mineralisation was present but a number
of factors were identified limiting the project’s economic potential, with
further exploration activity paused pending receipt of assay results from a
second phase infill drilling program.
* Engagement with the Government of Madagascar on Toliara Project fiscal
terms, and lifting of the project’s on-ground suspension, has been limited
during the quarter due to the Government focus on an overhaul of the Malagasy
Mining Code and preparations for the upcoming Presidential elections.  While
the Company remains committed to developing the world class project and is
ready to progress, until the Mining Code reform is finalised, and the
elections scheduled for late 2023 have concluded, the Company does not expect
to achieve material progress in securing fiscal terms or lifting of the
project’s on-ground suspension.
KWALE OPERATIONSOperational performance 
The Kwale South and North Dunes continued to be mined concurrently during the
quarter, with mining operations split equally between the two deposits. 
Mined tonnage was higher at 4.1 million tonnes (Mt) (last quarter: 3.3Mt)
following the stoppage for the mine move to North Dune last quarter.  Mining
rates in the high slime lower ore zones of the North Dune also improved during
the quarter, but remain below the mining rates for the upper ore zone. 
Further enhancements aimed at improving North Dune mining rates will be
trialled in the coming quarter. 

 

The heavy mineral (HM) grade of ore mined in the quarter was lower at 3.0%
(last quarter: 3.9%) due to the lower grades associated with the North Dune. 
Ilmenite recoveries were lower than the previous quarter due to a zone of high
chrome ore in the South Dune that required a higher quantity of low magnetic
rejects than normal to achieve requisite product quality.  As a result of the
lower ore grade mined and limited availability of heavy mineral concentrate
stocks, production of finished products was lower than the prior quarter.

 

Sand tails continued to be deposited into the mined-out Central Dune area and
capped with a 6m co-disposed slimes/sand layer to aid water retention and
subsequent rehabilitation.  Rehabilitation activities on the Central Dune and
the South Dune proceeded to plan.  


Preparations are underway to commence sand deposition in the mined-out areas
of the North Dune pit with pumping infrastructure established during the
quarter.

 

 SUMMARY BY QUARTER    FY22  FY23                    
                       JUN   SEP   DEC   MAR   JUN   
 Mining (million tonnes)                             
 Ore mined             3.9   4.4   4.5   3.3   4.1   
 HM %                  4.1   3.8   4.0   3.9   3.0   
 VHM %                 3.1   2.9   3.1   3.1   2.3   
                                                     
 Production (thousand tonnes)                        
 Ilmenite              83.8  86.0  84.5  71.6  55.5  
 Rutile                19.2  18.9  19.5  16.6  13.8  
 Zircon                6.8   6.6   7.4   6.4   5.5   
 Low grade products 1  4.9   5.7   5.2   4.1   3.4   

 

 SUMMARY BY QUARTER    FY22  FY23                        
                       JUN   SEP   DEC   MAR   JUN       
 US$ per tonne                                           
 Sales revenue         $691  $714  $651  $637  $695      
 Operating costs       $152  $154  $165  $190  $240      
 Cost of goods sold    $196  $200  $191  $195  $263      
 Revenue: Cost ratio   3.5   3.6   3.4   3.3   2.6       
 Sales (thousand tonnes)                                 
 Ilmenite              95.7  62.6  74.1  86.2  74.6      
 Rutile                24.7  14.2  14.7  15.2  19.6      
 Zircon                7.1   6.2   5.0   7.4   6.6       
 Low grade products 1  4.7   4.5   4.7   5.3   3.2       

 

[Note (1): Low grade products are a combination of low-grade zircon and
low-grade rutile which are sold separately at a discount to standard grade
products.]

 

Bulk shipping operations at the Company’s Likoni export facility continued
to run smoothly, with a combined 89.5kt of bulk ilmenite and rutile dispatched
(last quarter: 96kt).  Containerised shipments of rutile and zircon through
the Mombasa Port also proceeded to plan.

 

Unit operating costs have increased to US$240 per tonne produced (rutile,
ilmenite, zircon and low-grade products) (last quarter: US$190 per tonne) due
to lower ore grades resulting in lower production.  Despite this, total cash
operating costs of US$18.8 million are in line with the prior quarter (last
quarter: US$18.8 million) due to lower maintenance, product transport and
shipping costs offsetting the higher mining costs.

 

Cost of goods sold increased to US$263 per tonne sold (operating costs,
adjusted for stockpile movements, and royalties) due to sales volume and mix
(last quarter: US$195 per tonne), which also drove an increase in the average
unit revenue US$695 per tonne (prior quarter: US$637 per tonne). 
Consequently, the revenue to cost of goods sold ratio for the quarter was 2.6
(last quarter: 3.3).

 
FY23 production and FY24 production guidance
 

Total Kwale Operations production for the 2023 financial year (FY23) was
within the Company’s previously disclosed guidance range.  Total production
for FY23, together with the Company’s production guidance for FY23 and the
2024 financial year (FY24), is set out in the table below.  The FY24
production guidance is unchanged from that previously announced2. 

 

 Production Guidance (tonnes)  FY23                FY23 Actual  FY24 Guidance Range  
                                Guidance Range                                       
 Rutile                        62,000 to 73,000    68,784       35,000 to 41,000     
 Ilmenite                      260,000 to 310,000  297,861      130,000 to 160,000   
 Zircon                        22,000 to 27,000    25,954       13,000 to 16,000     

 

[Note (2): Refer to Base Resources’ announcement on 26 June 2023, “FY24
Production Guidance – Kwale Operations”, for the assumptions upon which
the guidance is based and an explanation of why the guidance is lower than the
FY23 guidance.]
MARKETING
Market conditions were relatively stable in North America and Europe but
became challenging in China due to a stalling economic recovery.  Despite
this, firm demand continued for Base Resources’ products through the
quarter.  Prices were steady for ilmenite and slightly lower for rutile,
while zircon prices moderately increased on the expectation of improved
domestic conditions after Chinese New Year. 

 

Ilmenite demand and prices in China improved at the end of the March quarter
and into the start of the June quarter as Chinese pigment plants ramped up
production in anticipation of a rebound in the domestic pigment market. 
However, sentiment became increasingly negative through the quarter as the
expected improvement in conditions was not realised.  Increasing competition
for pigment sales in both the domestic and export markets led to reduced
production from some operations in China, which led to a corresponding decline
in overall demand for ilmenite over the quarter.  Chloride pigment producers
in China, which are reliant on better quality imported ilmenite than the
domestically produced ilmenite, continue to ramp up new production lines which
is supporting demand for Base Resources’ ilmenite.

 

The planned ramp up in pigment production from major western producers in the
first half of 2023 has been slower than expected, with demand not returning to
normal levels by the end of the quarter due to ongoing economic uncertainties
in the major markets.  Pigment producers are therefore maintaining a cautious
approach to production to manage inventory levels.  Rutile remains a
preferred feedstock for western pigment producers as it enables plants to
minimise the use of other costly raw materials such as chlorine.  This
supported rutile demand through the quarter with prices only declining
moderately despite the challenging environment.  This situation is expected
to continue in the coming quarter.

 

Rutile demand from the smaller welding and titanium metal sectors remained
firm in the quarter and is expected to increase for the coming quarter. 
Rutile prices into these sectors command a significant price premium over bulk
rutile for the TiO2 pigment market.  Base Resources continues to increase its
proportion of rutile sales to the welding sector.    

 

As zircon sale contracts are typically agreed on a quarterly basis in advance
of the relevant quarter, better than expected market sentiment across Europe
and China in the March quarter resulted in an increase in the contracted price
of zircon deliveries for the June quarter.  However, stagnant conditions in
Europe through the June quarter, combined with negative sentiment in China,
has dented the outlook for zircon in coming quarters and zircon prices have
decreased moderately for the September quarter contracts.
SUSTAINABILITYHealth and safety
 

There were no lost time injuries during the quarter and, with no lost time
injuries in the past 12 months, Base Resources has a lost time injury
frequency rate (LTIFR) of 0.0 per million hours worked.  Compared to the
Western Australian All Mines 2020/2021 LTIFR of 2.0, this is an exceptional
performance and reflects the ongoing focus and importance placed on safety. 
With one medical treatment injury recorded in the last 12 months, Base
Resources’ total recordable injury frequency rate is 0.20 per million hours
worked.
 Community and environment – Kwale Operations
 

Farmers participating in the Company’s agricultural livelihood programs in
Kwale County, implemented through the PAVI farmers’ cooperative, planted 95
acres of cotton and 190 acres of maize in preparation for the new season, with
recent rainfall providing an encouraging sign for farmers.  Poultry feed
production continued to supplement farmer incomes, and the Company’s poultry
and beekeeping programs continued to grow in popularity.

 

Over 52,000 trees have been planted during the current rainy season. 
Established environmental controls have ensured that the onset of the wet
season were well managed with no significant erosion events or runoff into
surrounding communities.  Further, no instances of environmental
non-compliance, major environmental incidents or environment-related community
complaints were identified or recorded during the quarter.  

 
Community and environment – Toliara Project
 

All community training programs and social infrastructure projects remain on
hold while the Toliara Project’s on-ground activities are suspended.
BUSINESS DEVELOPMENT Toliara Project development – Madagascar
 

Engagement with the Government of Madagascar on Toliara Project fiscal terms,
and lifting of the project’s on-ground suspension, has been limited during
the quarter due to the Government focus on an overhaul of the Malagasy Mining
Code and preparations for the upcoming Presidential elections.  

 

A replacement Mining Code has been approved by Parliament and is now under
review by the High Constitutional Court for consistency with Madagascar’s
constitution.  Following this review and assuming no changes are required,
the replacement Mining Code will be sent to the President for promulgation and
will pass into law when published in the Official Gazette. 

 

Key financial elements of the replacement Mining Code relevant to the Toliara
Project are:

 
* Increase in royalty rate from 2% to 5%.  A reduction of 30% is applied to
the 5% royalty in the event the products are locally “transformed”, the
definition and application of which are unclear.  The Toliara Project Updated
Definitive Feasibility Study (DFS2) completed on 27 September 2021 assumed a
4% royalty rate.
* A contribution to the “Mining Fund for Community and Social Investment”
equal to 3% of the direct investment amount.  The term “direct
investment” is not defined and the applicability of this contribution
requirement to the Toliara Project is unclear.  If this requirement were to
apply to the Toliara Project, based on the DFS2 Stage 1 CAPEX of
US$520 million, this would require a contribution of US$15.6 million.3 
DFS2 assumed upfront community development spend of US$10 million.   
 

The application of the above elements, and several other key provisions of the
replacement Mining Code, lack sufficient detail to properly assess their
potential impact on the project.  Greater clarity is expected once the
Government has finalised and published the supporting regulations, orders and
decrees.

 

The first round of the Presidential elections are scheduled for 9 November
2023, with the second round (if needed) scheduled for 20 December 2023.  If
the President intends to contest the election as expected, he will have to
declare his candidacy by 23 August 2023 and resign by 9 September 2023.

 

Until the Mining Code reform is completed and the elections finalised, the
Company does not expect to achieve material progress in securing fiscal terms
or lifting of the project’s on-ground suspension.  The Company remains
ready and committed to progressing the world class Toliara Project to a final
investment decision once fiscal terms are secured and the on-ground suspension
is lifted.

 

Contact with major EPCM consultants, construction contractors and equipment
suppliers continued to be maintained in readiness once the suspension is
lifted.  Assessment of potential funding options for the Toliara Project also
progressed during the quarter.

 

The Toliara Rare Earths Pre-Feasibility Study of the economic potential of the
monazite contained in the Toliara Project’s Ranobe Mineral Resources
estimate continued in the quarter and remains on track for completion in the
March quarter of 2024.

 

Total expenditure on the Toliara Project and Toliara Rare Earths
Pre-Feasibility Study for the quarter was US$2.0 million (last quarter: US$1.7
million).

 

[Note (3): For further information about DFS2, refer to Base Resources’
announcement on 27 September 2021 “DFS2 enhances scale and economics of the
Toliara Project” available at
https://baseresources.com.au/investors/announcements/.  Base Resources
confirms that all the material assumptions underpinning the production
information and forecast financial information disclosed in that announcement
continue to apply and have not materially changed.]

 
Extensional exploration – Kenya
 

The Company released results from the first phase auger drilling program
(Phase 1) at the Kwale East exploration project4 (within Prospecting Licence
2018/0119) shortly after the end of the quarter on 3 July 2023.  The results
confirmed the presence of HM, with a peak drill hole grade of 6.3% HM, as well
as a high value mineral assemblage.  Three areas of mineralisation were
identified for further targeted exploration in the second phase air core
drilling program – Magaoni, Masindeni and Zigira. 

 

The second phase program is now underway and will focus on drilling the
remaining ~35% of the highly prospective areas in Magaoni and Zigira as
landholder consents are obtained.  All auger holes from Phase 1 with an
average HM grade greater than 1% will be twinned to enable better sample
quality and allow drilling through to basement.  It is expected that Phase 2
will be completed in the December quarter.  

 


Aircore drill rig in Kwale East

 

Prospecting licence applications lodged for an area totalling 722 km2 in the
Kuranze region of Kwale County, about 70 km west of Kwale Operations, together
with applications for an area south of Lamu, totalling 888 km2, remain on hold
pending lifting of a Government of Kenya moratorium on issuance of new mineral
rights, in place since November 2019.  The Company is working with the
Government, and other mining sector stakeholders, to see the moratorium
lifted.

 

Expenditure on exploration activities during the quarter in Kenya was US$389k
(last quarter: US$312k).

 

[Note (4): For further information, refer to Base Resources’ announcement on
3 July 2023 “Kwale East exploration drilling update” available at
https://baseresources.com.au/investors/announcements/. Base Resources confirms
that it is not aware of any new information that materially affects the
information included in that announcement.]

 
Extensional exploration – Tanzania
 

The Umba South Project in northern Tanzania is located approximately 75km
west-south-west of the Company’s Kwale Operations in Kenya.  Exploration at
Umba South was designed to test the southern extremity of a prominent
north-south trending ridge of quartzite and gneiss that extends 35km north to
the Kuranze region of Kenya, where initial rock chip and soil sampling
indicated the presence of rutile.  Exploration activity in this area has so
far been confined to areas south of the Umba River, while the Company seeks to
obtain the necessary approvals from various government departments to explore
in the Mkomazi Game Controlled Area to the north which hosts the target ridge
feature extending north to the Kenyan border.

 

Results from 122 holes drilled for 3,015m in the first phase reconnaissance
exploration program were released in the quarter5.  Three primary geological
domains were identified.  While rutile mineralisation was present in each
domain, factors unique to each domain were identified which would be expected
to limit any significant economic potential.  They included a lack of
mineralisation thickness, a lack of continuity of mineralisation, or the
presence of known deleterious elements for mineral sands processing.

 

A second phase infill drilling program to assess the continuity of rutile
mineralisation in the saprolite layer completed 86 holes for 2,128m. 
Assaying of these drill samples has commenced at the Kwale Operations
laboratory but assay priority is currently being given to Kwale East
exploration drill samples and therefore results are not expected until late in
the September quarter.  These results will assist in planning future
exploration activity at Umba South and elsewhere along the prospective
geological zone once necessary land access approvals are obtained.

 

Expenditure on exploration activities during the quarter in Tanzania was
US$101k (last quarter: US$431k).

 

[Note (5): For further information, refer to Base Resources’ announcement on
8 May 2023 “Tanzanian exploration – Umba South Phase 1 drill results”
available at https://baseresources.com.au/investors/announcements/. Base
Resources confirms that it is not aware of any new information that materially
affects the information included in that announcement.]  

CORPORATE  

The Company is targeting release of its FY23 audited consolidated financial
statements in the week commencing 28 August 2023.  Confirmation of timing
and investor webcast details will be advised closer to the planned release.

 

As at 30 June 2023, the Company had cash of US$92.9 million and no debt.

 

The Company has the following securities on issue:
* 1,178,011,850 fully paid ordinary shares.
* 53,598,359 performance rights issued pursuant to the terms of the Base
Resources Long Term Incentive Plan, comprising:
* 1,872,852 vested performance rights, which remain subject to exercise6; and
* 51,725,507 unvested performance rights subject to performance testing in
accordance with their terms of issue.
 

[Note (6): Vested performance rights have a nil cash exercise price.  Unless
exercised beforehand, these rights expire five years after vesting.]

 

ENDS.

 
Forward looking statements
 

Certain statements in or in connection with this announcement contain or
comprise forward looking statements.  Such statements may include, but are
not limited to, statements with regard to future production and grades,
capital cost, capacity, sales projections and financial performance and may be
(but are not necessarily) identified by the use of phrases such as “will”,
“expect”, “anticipate”, “believe” and “envisage”.  By their
nature, forward looking statements involve risk and uncertainty because they
relate to events and depend on circumstances that will occur in the future and
may be outside Base Resources’ control.  Accordingly, results could differ
materially from those set out in the forward-looking statements as a result
of, among other factors, changes in economic and market conditions, success of
business and operating initiatives, changes in the regulatory environment and
other government actions, fluctuations in product prices and exchange rates
and business and operational risk management.  Subject to any continuing
obligations under applicable law or relevant stock exchange listing rules,
Base Resources undertakes no obligation to update publicly or release any
revisions to these forward-looking statements to reflect events or
circumstances after today's date or to reflect the occurrence of unanticipated
events.

 
For further information contact:

 Australian Media Relations        UK Media Relations             
 Citadel Magnus                    Tavistock Communications       
 Cameron Gilenko and Michael Weir  Jos Simson and Gareth Tredway  
 Tel: +61 8 6160 4900              Tel: +44 207 920 3150          

 

This release has been authorised by the Board of Base Resources.
About Base Resources
Base Resources is an Australian based, African focused, mineral sands producer
and developer with a track record of project delivery and operational
performance.  The Company operates the established Kwale Operations in Kenya,
is developing the Toliara Project in Madagascar and is conducting exploration
in Tanzania.  Base Resources is an ASX and AIM listed company.  Further
details about Base Resources are available at www.baseresources.com.au.

 

PRINCIPAL & REGISTERED OFFICE
Level 3, 46 Colin Street
West Perth, Western Australia, 6005
Email:  info@baseresources.com.au
Phone: +61 8 9413 7400
Fax: +61 8 9322 8912

 

NOMINATED ADVISER & JOINT BROKER
Canaccord Genuity Limited
James Asensio / Raj Khatri / Patrick Dolaghan
Phone: +44 20 7523 8000

 

JOINT BROKER
Berenberg
Matthew Armitt / Detlir Elezi
Phone: +44 20 3207 7800



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